UPDATE 3-Portugal opposition chief demands renegotiation of bailout

LISBON, Feb 26 (Reuters) - Portugal should renegotiate the
terms of its international bailout because its programme of
budget cuts has failed and sent the economy into a slump, the
head of the main centre-left opposition said on Tuesday.

The Socialists, who agreed Portugal's original deal with the
IMF and European Union in 2011, have been calling for some time
for an easing of the spending cuts and tax hikes that have
driven the small euro zone member state into deep recession.

But until now they had stopped short of demanding new talks
on the terms of the 78 billion euro ($103 billion) bailout.

"We need more time and a delay of interest payments,"
Socialist head Antonio Jose Seguro told journalists. "There
cannot be more austerity, there has to be a strategy of growth."

He was speaking a day after Portugal's creditors started
their seventh review of the bailout and after
Italy's inconclusive election renewed euro zone crisis fears.

The government is expected to request an easing of budget
goals, but has also said it has plans for contingency measures
to reduce deviation from these goals, mainly further spending
cuts.

"I hope the government refuses proposals (by the 'troika' of
lenders) for more austerity," said Seguro. "A renegotiation
implies more time for our budget consolidation and it means
lower interest payments. The Portuguese cannot take any more."

The economy is mired in its worst recession since the 1970s
and unemployment is at record highs at just under 17 percent.

The centre-right coalition government has a majority in
parliament so Seguro's demand cannot change policy, but his
party is close to unions that are stepping up opposition to more
austerity.

Prime Minister Pedro Passos Coelho said Tuesday the country
does not need more time to complete its adjustment programme.

NO MORE TIME NEEDED

"We do not need more time nor more money to fulfil
the(bailout) programme," he told reporters without referring to
Seguro's comments. "We intend to conclude he bailout programme
by mid-2014 with the same finacial package that had been
envisaged."

The government has argued that it has implemented all key
reform and economic adjustment elements of the bailout even
though it may need a new easing of the headline budget deficit
goal this year and next year after a similar move in 2012.

Portugal had enjoyed a sharp improvement in market sentiment
in the past few months as investors grew increasingly confident
that the euro zone crisis was abating.

However, this week's inconclusive election in Italy could
turn the focus back to southern Europe's weak economies and
heavy debts. Portugal's 10-year bond yields rose more than 20
basis points on Tuesday to 6.5 percent.

"Italy is a very important country and the election result
is very worrying," said Seguro.

Calls in Portugal for less austerity have risen sharply
since the economy shrank more sharply than expected in the
fourth quarter of last year. That prompted the European
Commission to downgrade the outlook for this year to a slump of
1.9 percent from a previous forecast of a 1 percent contraction.

"We are not heading in the right direction," said Seguro.
"The prime minister has his back to the country."

The government launched the largest tax hikes in living
memory this year to boost revenues, which is likely to cut
spending by the Portuguese further.